When most people think of trading, they imagine buying and selling stocks.
But beyond stocks, there’s a much larger world — the Futures Market.
The futures market is not just for speculators looking to profit from price movements.
It is also a powerful tool for hedging and managing risk.
Let’s break it down step by step.
1. What is the Futures Market as per ICT?
A futures contract is an agreement to buy or sell an asset (like oil, gold, wheat, or even stock indexes) at a set price on a future date.
- The buyer agrees to purchase the asset at the contract price.
- The seller agrees to deliver the asset at the contract price.
Unlike the stock market, which deals in ownership of shares, the futures market is all about contracts.
Example:
Suppose gold is trading at $2,000 per ounce. A gold futures contract might allow you to lock in that price for delivery three months from now.
Whether you are an investor, a company, or even a farmer, this contract gives you certainty about future costs or revenues.
2. Who Uses the Futures Market? And why?
There are two main types of participants:
- Hedgers – These are businesses or investors who want to protect themselves from price swings.
- Speculators – These are traders who want to profit from those price swings.
Both play an important role in keeping the futures market liquid and efficient.
3. Hedging with Futures = Hedging for Life
Hedging means protecting yourself from risk.
Businesses use futures to lock in prices so they are not caught off guard by sudden changes.
Example 1: A Farmer Hedging Wheat Prices
A farmer growing wheat fears that by the time he harvests, wheat prices might fall.
So, he sells wheat futures contracts today at a fixed price.
- If prices drop later, his loss in the cash market is offset by the gain in the futures market.
- If prices rise, he won’t benefit as much, but at least his income is protected.
Example 2: An Airline Hedging Fuel Costs
Airlines spend billions on jet fuel.
If fuel prices suddenly rise, it can destroy profits.
To manage this, an airline can buy oil futures at today’s price.
- If oil prices go up later, the higher cost is balanced out by profits from the futures contracts.
- This allows airlines to plan their ticket prices without worrying about wild swings in oil costs.
4. Risk Management with Futures as per ICT
Futures are also used as a tool to manage financial risk. Investors often use them to protect portfolios.
Example: Hedging Stock Market Risk
Suppose you own a large portfolio of US stocks worth $1 million.
You’re worried about a possible market downturn in the next three months.
Instead of selling all your stocks, you can sell stock index futures (like S&P 500 futures).
- If the market falls, your portfolio loses value, but your futures position gains.
- If the market rises, your portfolio gains, but your futures position loses.
This way, you reduce your downside risk while still staying invested.
5. Why the Futures Market Matters? And what can you do with ICT
For businesses: It provides stability.
Farmers, oil companies, exporters, and airlines can plan ahead without being at the mercy of price swings.
For traders: It provides opportunities.
Speculators take on the risk that hedgers want to avoid, hoping to profit from price moves.
For the economy: It improves efficiency by balancing supply, demand, and risk across industries.
6. Conclusion
The futures market is more than just a place for traders to speculate.
It is a risk management system that allows businesses and investors to protect themselves from unpredictable price movements.
Through hedging, a farmer can secure his income, an airline can stabilize fuel costs, and an investor can protect a stock portfolio.
In short: Hedgers use futures to manage risk. Speculators use futures to seek profits.
Both keep the market running smoothly.
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